Cash flow has become a critical factor in midsize companies’ plans for growth, according to a new survey.

Senior finance executives at midsize companies said that cash from ongoing operations is likely to be their primary source of growth capital over the next two years, according to a new report from American Express and CFO Research.

The report, “Cash and Liquidity Management,” surveyed 325 senior finance executives at midsize companies in the U.S. to understand how they are currently managing their cash flow, in addition to their priorities and plans for improving cash management and working capital in the next few years.

“Midsize companies can be vulnerable to economic swings, making cash flow management key to their ongoing stability and growth,” said Darryl Brown, president, Americas, of global corporate payments at American Express, in a statement. “In a tight financing environment, access to liquidity can make the difference between simply enduring an uncertain recovery versus taking advantage of opportunities to move your business forward.”

Fifty-eight percent of the senior finance executives polled said that cash from retained earnings (cash derived from operations) has been their companies’ major source of growth capital over the past three years. Less than one-quarter (24 percent) of the survey respondents relied on secured or unsecured debt financing. Only 8 percent of the poll respondents said they relied on equity financing.

This focus on cash is expected to intensify in the years ahead. A large majority of finance executives (78 percent) preidcted that cash from ongoing operations will be their companies’ primary source of growth capital over the next two years. Only 14 percent of the survey respondents disagreed with this sentiment.  

When senior finance executives were asked which changes would contribute most to their ability to manage cash flow effectively, the leading choices were: motivating account relationship holders to help with collections (40 percent), increased use of electronic payments (38 percent), and improving the timeliness and accuracy of cash forecasting (30 percent).

Senior finance executives are also focusing on securing reasonably priced, reliable sources of short-term financing. Commercial bank financing is the most common method, with 58 percent of respondents saying they are using it frequently or occasionally.

This category is followed closely by “float,” realized through corporate credit cards, charge cards or procurement cards, with 55 percent of respondents using this method frequently or occasionally.
“The research reveals that midsize companies are relying on various payment methods, such as electronic payments and commercial cards, to help boost their cash flow,” said Brown. “That’s the right move. Companies that increase adoption of these payment methods not only improve their working capital, but can increase the visibility and control of their payments, reduce costs and improve their accounts-payables process overall.”

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